Know the Impact of Bankruptcy on Your Taxes

Know the Impact of Bankruptcy on Your Taxes

The term bankruptcy is considered as a legal status of an individual or company that happens to be unable to repay their incurred debts from their creditors. In most cases, bankruptcy is being imposed by the court orders. It is usually initiated by the debtor. However, sometimes the weight of the issue is given to the debtor from the creditors.

YOU ARE ONE OF 50,000,000 AMERICANS WHO MUST F...
YOU ARE ONE OF 50,000,000 AMERICANS WHO MUST FILL OUT AN INCOME TAX RETURN BY MARCH 15. FILE YOURS EARLY. – NARA – 516201 (Photo credit: Wikipedia)

The IRS pub 17 2013 signifies the legal implications on income taxes. This involves the possibility of declaring bankruptcy and its variable forms. Chapter 11 bankruptcy pertains to the debts of the person being reorganized. In this scenario, the debtors have ways to repay some or total amount of their debts. The Chapter 7 bankruptcy involves the liquidation of the debtor’s assets and liabilities. In this situation, the debtors have no means to repay most, if not, the total amount of their debt.

How can Bankruptcy Create an Impact to Debts

Basically, filling of bankruptcy is very complicated. This makes it important for you to consult a bankruptcy lawyer to ensure that all actions you make are done appropriately. In general, bankruptcy does not create impacts to your income tax return, even if there is a cancellation of debt, which is normally taxable on your tax returns.
The reason behind this is that any sources of debts discharged in bankruptcy are excluded from the incomes under the income tax regulations. The regulations pertaining to bankruptcy in relation with income tax returns are:

1. If you are being audited, filling of bankruptcy will not stop the auditing. However, it will stop the collection process while the bankruptcy is on pending status. Moreover, the time collection activities stop, such as during the time that you are deemed as not collectible or during the processing of the compromise state is extended. Always consider these concerns before declaring bankruptcy.

2. Not all of tax debts are entitled for discharge in bankruptcy. Items that are considered as priority debt are not dis-chargeable, as well. This includes student loans, child support, fines stemming from committing of felonies, and drunk driving cases. The priority debts should be fully repaid, which are classified under the Chapter 13 bankruptcy.

Forgiveness of debt is usually considered as taxable income. However, it becomes ineffective to insolvency and bankruptcy. Sometimes, it is good to present offer in compromise by settling your tax debt. It is still suggested to confer your debt issues with a tax professional and bankruptcy attorney in order to come up with a set of appropriate course of action. This can help you eliminate the possibilities of applying legal actions, which are not suitable for your specific case.

Tax Carnival Ecstasy – January 10, 2013

Welcome to the January 10, 2013 edition of Tax Carnival Ecstasy. In this edition we have an article from John Schmoll on the First Steps to Investing in the Stock Market for those looking to save for retirement. Bill Smith looks at President Obama And The Fiscal Cliff Deal that was recently signed after passage in the House of Representatives. And finally we have a post on Ways An IRS Tax Lawyer Help You.  Hope you enjoy the articles in the carnival, bookmark our page, like on Facebook, tweet, share with your friends and come back soon.

James Dean presents Bad Credit Debt Consolidation Loans – How To Find Legitimate Companies posted at Unsecured Bad Credit Debt Consolidation & Personal Loans Online, saying, “Bad credit debt consolidation loans help the borrower to get out multiple debts by simply paying them all off with one single loan payment. This loan payment is often at a lower interest rate than the previous multiple debts and normally, it also has better payment terms. This is like a breath of fresh air for those people that are up to their necks in debt and need help getting their credit rating back up to a healthy place.”

English: Showing how the rapid rise in in mort...
English: Showing how the rapid rise in in mortgage credit distress is being led by subprime ARMs. Conventional loans past due 90+ days and Conventional loans in foreclosure. (Photo credit: Wikipedia)

Gregory Arnold presents How The Unemployed Can Get $1500 Fast Cash Advance Loans posted at Online Fast Cash Loans, saying, “It has been a tradition that if one is not working or earning less than 500 dollars a month, they are not legible for a personal loan on low income or against unemployment. This kind of arrangement has changed with time and the risks involved in extending financial aid to unemployed have been bypassed hence giving the lenders like payday and cash advance lenders to extend loans in small installments to the unemployed;”

credits

Gregory Arnold presents Does Anyone Know Reputable Online Cash Advance Lenders? posted at Online Fast Cash Loans, saying, “It is normal for people to face financial problems. These problems can be dealt with easily, but when salary is not expected soon, that becomes very difficult. However, nowadays there are more efficient ways of dealing with such problems. One of them is applying for cash advance. To do this, you need to look for a good lender. So, the question still remains: does anyone know reputable online cash advance lenders?”

filing

Bill Smith presents Free Tax Filing For 2010 Amended Return posted at 2010Taxes, saying, “Even with the best of intentions, mistakes happen. Sometimes they can be costly. But in the case of amended tax returns, fixing them could be free.”

retirement

John Schmoll presents First Steps to Investing in the Stock Market posted at Frugal Rules, saying, “Just starting to invest in the stock market can be a daunting task for many. But, with a few simple guidelines you can get started on the road to investing for your future.”

tax law

Bill Smith presents IRS Tax Lawyer Due Diligence posted at 2008 Taxes, saying, “Tax attorneys can help people with IRS problems. The IRS is always willing to work with the tax payer to get issues resolved.”

Bill Smith presents Electronic Version Of Pub 17: Getting Cozy With The IRS posted at 2009 Tax, saying, “The electronic version of pub 17 is in PDF format. It contains valuable information about filing your federal tax return.”

Bill Smith presents President Obama And The Fiscal Cliff Deal posted at 2012 Tax – Free Tax Filing Options, saying, “President Obama has left out certain important aspects of the fiscal cliff deal, in a video broadcast on the Web.”

Bill Smith presents The Fiscal Cliff Fact Check posted at 2012 Taxes – Free Tax Filing Options, saying, “Checking the facts on President Obama and the ‘fiscal cliff’ deal.”

Bill Smith presents Fiscal Cliff Deal – 77 Percent Of All Americans Set To Pay More Taxes posted at 2012 Taxes – Free Tax Filing Options, saying, “The President has claimed that the Tuesday night fiscal cliff deal will reduce middle class taxes in America. However, taxes for most Americans will increase in 2013.”

taxes

Bill Smith presents In What Way Can An IRS Tax Lawyer Help You posted at 2009 Taxes, saying, “Even though taxing is such an important subject, it is a pity that quite a number of people are unaware of the depth and importance of taxing.”

That concludes this edition. Submit your blog article to the next edition of tax carnival ecstasy using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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Self Employed? – Here’s 5 Reasons Why You Need An Accountant

For the self-employed, tax time can be an entirely different experience than for those who are either employed by another company or own their own business. Being self-employed means that you are technically both an employer and an employee, and are at times responsible for paying taxes on issues that affect both.

Taxes are already complex enough for the average individual, but that situation is exacerbated by your current status. As a result, it may be wise to talk to an accountant, as they can not only find special deductions and benefits, but save you the time and anxiety of having to figure out your tax status.

1. Special Rules

In the United States, every working individual is responsible for paying tax for Social Security and Medicare. However, the amount of tax paid is typically split between the employer and employee, whereas with a self-employed person they are responsible for both. This is just one of a number of different rules and forms that change as a result being self-employed. Having a certified accountant will help you sort through the brambles and not have to worry about an audit.

2. Loopholes and Tricks

Regardless of what type of situation you are in, it’s never a bad idea to consult an accountant as they are far more educated on how to maximize your tax return. Every year the government passes legislation or makes changes to the tax code that affects businesses of all types. Special credits and other tax friendly programs may also be introduced but not publicized to the general public.

Accountants are paid to keep abreast of such situations and how they apply to their various clients. In fact, many of the special tax benefits and tricks apply specifically to those who own a business, and having an accountant experienced with the self-employed may end up saving you far more than the cost of the hiring one.

3. Time

Even if you are willing to sift through the morass of new forms, rules and special deductions and exemptions, the one thing you will inevitably lose is time. Paying an accountant to do your taxes will save you time to concentrate on running your business. Depending on how much income you can generate with that time, it may be that it’s more cost effective to earn money to pay for an accountant than do your taxes for free.

4. Advice and Audits

Accountants can also be relied upon for advice as to how to avoid certain tax penalties or qualify for specific deductions or exemptions. For example, as you can deduct equipment purchases over a single year or over a extended period of time, you can consult them on which deduction works best for your business. If you are by chance audited, a qualified professional can assist you with the process.

5. Online Alternatives

For some self-employed individuals, it can be very difficult to pay for an accountant given their limited financial resources. Relying on an accountant, however, doesn’t necessarily mean relying on a living person. Accounting software can be just as adept at finding the best deductions provided you give it the information they require.

As a result online software is best reserved for those that have relatively simple situations, especially self-employed individuals who will likely be using the standard deduction for much of their taxes.

John Hill writes on behalf of Public Liability Insurance dot org an online resource for business insurance including childrens liability insurance.

Discharging Tax Debt Through Bankruptcy

Filing for bankruptcy can be an effective way to get out of debt and get started rebuilding your financial life. While bankruptcy can provide quicker relief than other options such as debt settlement or credit counseling, some debts are ineligible for discharge. When dealing with tax debt, it can be difficult to get a discharge for it through bankruptcy. While it is possible, you’ll have to make sure that you meet certain standards. Otherwise, your tax debts may remain even after you file for bankruptcy.

Tax debts are subject to specific rules that must be met before they can be discharged in any kind of bankruptcy. The tax debt in question must be at least 36 months old in order to be eligible. When you need to discharge a tax debt, the return associated with that debt must have been filed at least 24 months ago as well. In addition to filing the return more than 24 months ago, you also have to make sure that the tax assessment is at least eight months old. The tax return that you file also has to be legitimate and cannot be fraudulent. You also cannot simply file for bankruptcy so that you can get out of paying taxes. This is considered tax evasion and is against the law.

If you want to qualify for bankruptcy discharge with your tax debt, you also have to prove that you have filed your last previous four tax returns with the Internal Revenue Service. Without having proof of filing those returns, you will not be eligible to have the debt discharged through the bankruptcy process.

While it is possible to get your tax debt discharged in bankruptcy, it is not very likely. In order to get part of your tax debt discharged, you have to prove that it is at least three years old. In most cases, the Internal Revenue Service will start contacting you almost immediately after your tax debt is not paid. The chances of you being able to hold out for more than three years without having anything done by the IRS are not good. The Internal Revenue Service has many ways that they can try to get you to pay your tax debt. For example, the IRS can file a tax lien on your property and make it difficult to sell any of your property without paying back the debt. In some cases, the IRS also has the right to seize your property such as your house, your vehicle, jewelry, securities and money from your bank account. If you do not pay the debt in the appropriate amount of time, the IRS will start trying to collect this money from you.

If you are having trouble repaying your tax debt, you may want to explore some other options besides trying to wait out the three year period for filing bankruptcy. For example, you could try to set up an installment agreement with the IRS or use an offer in compromise to settle your tax debt for less than you owe. The IRS will evaluate your proposal and decide if it is worth accepting.

IRS Tax Debt – Resolving the IRS Dues that you Owe

If you owe money to the IRS on taxes, you should find out some way to pay off the due amount. Otherwise, things can get complicated. There are various ways in which you can try resolving your IRS tax debt. You can try to do it on your own or else, you can also try to get help from the debt settlement companies to resolve the tax debt problem.

Resolving IRS tax debt:

Resolving your tax debt on your own is not much of a problem because there are various ways in which you can pay off your IRS debts. This is because the IRS encourages the tax payers to pay at least what is possible for them. The different types of IRS pay off agreements are:

1. The installment agreement – In installment agreement you can make a payment each month (installment) on the back taxes. This helps you to pay off the taxes that you owe to the IRS. Installment agreement types–

* Non-streamlined
* Partial payment
* Guaranteed
* Streamlined

2. Offer in Compromise – In OIC or offer in compromise you are not required to pay the full tax amount that you owe to the IRS. The IRS allows you what the debt settlement companies do for you in case of simple debts. There are some terms and conditions which you will have to abide by while making OIC payments, otherwise the IRS can revoke the OIC.

3. Currently not collectible plan – In Currently not collectible plan you won’t have to pay your back taxes at least for the time being. This is one of the best debt relief options for you, if you are now without enough cash to handle all of your expenses. You will have to pay off the debt at a later date.

The thing is that you will have to try and pay off your taxes. If you are facing problems you will have to talk about that to the IRS and they will offer you any of the above agreements as per your financial condition. However, if they are able to find out that you intentionally trying not to pay the tax, you may get seriously penalized.

Dealing with Tax Debt

Handling tax debt is different from how you handle other debts, but you need not worry because for sure you will be able to work a good plan that will reduce your balances. Here are several ways that you can start drafting out a plan:

Check your tax return documents for any corrections

The first thing that you have to do is to collect all your documents of tax return and check if all the entries are correct and that you were not overcharged for something. Nevertheless, if you do not have any idea about this type of things you may opt to get debt help from a certified public accountant of financial counsellor to help you check if there is a discrepancy between the figures.

Your financial assistant will also help you in determining which plan of action you intend to do against your debts. After doing that, he or she may suggest the following tax debt reduction strategies.

Negotiate your tax debts with the Internal Revenue Service

Once you have the total amount that you need to pay, one option that you can do is to go directly to the office of the Internal Revenue Service. Personnel from them can assist you and suggest options and plans that you can do for you to be able to pay your balances. Some of the programs they have include the following:

  1. Monthly tax debt program. This is one of the most known strategies that you can do, the internal revenue service will allow you to pay for your debts on an instalment basis payable. However, the catch about this strategy is that your current tax debt amount will accumulate interest charges over the months of paying period. Apart from the penalty and interest, you will also need to shell out a user fee amounting to $105.
  2. The internal revenue service can also offer you what they call as “hardship consideration.” This is the approach wherein they will give you a few months to save up for your debts and for your financial status to work out. However, you still need to pay interest fees, penalty charges, and application fee.
  3. Another tax debt solution is filing for bankruptcy. But, if you think that you can still do something about your balances then do so. Applying for account foreclosure can directly affect your credit score and can make future transactions with the bank difficult.